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16 March 2007

Mr Speaker
Madame Premier
Members of the Provincial Executive Council
Distinguished guests
Members of the media
Ladies and gentlemen

Sharing what we know whilst continuing to learn from others assisted to ensure that expenditure proposals for the vote of the Free State Provincial Treasury, for the 2007/08 to 2009/10 Medium Term Expenditure Framework (MTEF) period, represents the end result of leading edge creative ideas.

In this regard we set out to define a framework for action to achieve my Department's vision of being a leading change agent for improved economic growth and social equity through prudent financial management.

We endeavoured to do so within a coherent funding framework that allows for:

* the creation of an enabling treasury environment
* informed by a collaborative approach capable of consolidating gains arising from various budget and accounting reforms of recent years
* by further supporting a heightened focus on performance management.

Proposed aggregate allocations for the 2007/08 to 2009/10 MTEF period

Mr Speaker, it is proposed that the charge to the provincial revenue fund to fund operations of vote four the Provincial Treasury over the next MTEF period be as follows:

* R127,112 million in 2007/08
* R136,374 million in 2008/09
* R146,457 million in 2009/10.

These allocations represent nominal year on year growth of 6%, 7% and 7% respectively over the three-year MTEF period.

Over 96% of allocations will be funded from the provincial equitable share of nationally collected revenue and 4% from provincial own revenue sources. Members of this House are aware that the Provincial Treasury does not receive any national conditional grants.

Expenditure proposals over the MTEF period, caters for inflationary expectations and also provides for estimated salary adjustments over the MTEF period.

Furthermore, estimates by economic classification results in the following relative shares of different categories of expenditure to be provided over the MTEF period namely:

* 61% for compensation of employees
* 38% for goods and services
* 1% for transfers and subsidies to households as well as capital payments in respect of machinery and equipment.

Estimated departmental own revenue receipts: 2007/08 to 2009/10

Mr Speaker, before I deal with expenditure proposals in respect of different programmes of the Department allow me to briefly deal with estimated departmental revenue receipts over the next MTEF period.

These receipts refer to sources of provincial own revenue arising from departmental operations which is collected by my Department and then paid over to the provincial revenue fund, as the Provincial Treasury's own contribution towards the coffers of provincially collected revenue. It is thus important that this departmental operation should not be confused with the transversal treasury function of optimising the revenue of all provincial departments, as part of the provincial fiscal policy strategy.

Mr Speaker, such own departmental revenue receipts is estimated to amount to R58 million in 2007/08 which represents a 5% increase compared to the adjusted 2006/07 appropriation. Hereafter, it is projected to grow at a steady 5% per year to R61 million in 2008/09 and R64 million in 2009/10.

Interest earned on investment of unused provincial funds that is available from time to time for relatively short periods of time, accounts for the lion's share of 99,4% of own departmental revenue receipts over the MTEF period whilst the remaining 0,6% will be derived from incidental departmental receipts arising from the occasional sale of departmental goods and services, the sale of capital assets, the imposition of fines, penalties and forfeits and financial transactions in assets and liabilities.

2007/08 to 2009/10 expenditure proposals per programme

Mr Speaker, I now want to deal with the detail of the various expenditure programmes in my vote over the MTEF period as this would give an indication of the main services the Provincial Treasury is expected to render over the 2007/08 to 2009/10 MTEF period.

In the jealousy of time, I will not deal with the full detail of all sub-programme expenditure but focus more closely on those treasury operations that more directly support the attainment of the development goals of the Free State Growth and Development Strategy (FSGDS).

Expenditure proposals in respect of programme one: Administration

Programme one, administration, focuses on the overall management of the Department and aims to provide strategic leadership and strategic management in accordance with applicable legislation, regulations and policies through planning, organising and co-ordinating and controlling departmental functions so as to ensure that there is appropriate support services available to all other departmental programmes, thus enabling the achievement of overall departmental goals as efficiently, economically and effectively as possible.

This programme comprised of sub-programmes for:

* the Office of the MEC
* management services
* corporate services
* financial management
* internal audit accounts for 34% of total departmental expenditure in 2007/08, given its first MTEF year allocation of R43 million. Further allocations will be R43 million in 2008/09 and R45 million in 2009/10.

Expenditure proposals in respect of programme two: Sustainable Resource Management (SRM)

Programme two, SRM, provides professional advice and support to the MEC on provincial economic analysis, fiscal policy, public finance development and management of the annual budget process.

This programme is comprised of sub-programmes for:

* programme support, providing for the cost related to the efficient running of the programme
* economic analysis which provides for provincial economic and social research that informs the annual provincial budget process to ensure that it contributes towards the attainment of the objectives of the FSGDS
* fiscal policy which provides fiscal policy advice, determining the provincial MTFF and develop and optimise the provincial revenue base
* budget management charged with the preparation of the provincial MTEF budget in line with the goals and objectives and special focus areas of the
FSGDS
* public finance providing policy advice and monitoring budget implementation.

R13,5 million is allocated to this programme in the first MTEF year, which accounts for 10,6% of total departmental expenditure in this year. Allocations in the second and third MTEF year will be R14 million and R14,8 million respectively.

Mr Speaker, the Provincial Treasury has now succeeded in engineering an approach to provincial resource allocation that saw a deliberate movement away from a conventional budget process, largely informed by historical departmental baselines in favour of an approach that seeks to utilise priorities from the FSGDS as the mandating framework informing resource allocations to departments in line with the specific objectives of provincial clusters.

This approach has already started to yield dividends as is evidenced by improved provincial expenditure and much improved infrastructure delivery in the current financial year. To further consolidate the gains from the new resource allocation strategy, it becomes increasingly important for the Treasury to focus on external factors to the extent that they may impact on the effectiveness of provincial expenditure with regard to intended beneficiaries of public goods and services.

In line with the aforementioned, the allocation to this programme will enable the Treasury to further engage in various processes aimed at ensuring that provincial resource planning and actual service delivery programmes, take place in a manner that allow for more effective synergy, alignment and co-ordination with national departments, parastatals, state-owned enterprises (SOEs), provincial entities and district and local municipalities to achieve the service delivery and development objectives of the FSGDS.

Mr Speaker, to ensure that this province is well geared to internalise competitive and comparative advantages to the benefit of the province and mitigate any negative external factors, the new MTEF period will see the Provincial Treasury more aggressively assuming the role of a leading change agent to address the gap between provincial socio-economic needs and key service delivery indicators. Over this coming MTEF period, I therefore commit my Department to ensure that:

* it effectively utilises operations in the areas of economic analysis, fiscal policy and public finance to lengthen the provincial planning horizon so as to create a treasury environment that allows all important role players and stakeholders in the province to contribute towards the attainment of the long term development objectives of the province
* it continues to conduct visits to different infrastructure projects in the province to verify project implementation information contained in the provincial infrastructure model as well as information provided by provincial departments in their infrastructure plans, to facilitate better performance assessment of infrastructure delivery and its impact on key economic variables.

Expenditure proposals in respect of programme three: Asset and Liability Management

Programme three, asset and liability management, is responsible for supporting and interlinked financial systems provides policy direction and facilitates the effective and efficient management of physical and financial assets and Public-Private Partnerships (PPP).

This programme is comprised of sub-programmes for:

* programme support, providing for the cost related to the efficient running of the programme
* asset management, responsible for facilitating the effective, efficient, economical and transparent management of physical and financial assets and the implementation of PPP and supply chain management frameworks
* supporting and interlinked financial systems through managing the implementation and maintenance of provincial financial systems.

This programme, accounts for 41% of total departmental expenditure in 2007/08, given its first MTEF year allocation of R52 million. Further allocations will be R60 million in 2008/09 and R62 million in 2009/10.

Several focus areas will remain important over the MTEF period in respect of work performed by this programme.

With regard to the need to monitor the implementation of policies for the effective management of physical assets, the development of efficient systems for inventory and stock control, will remain a high priority with particular focus on the development and implementation of transparent and economic practices to deal with asset disposals.

In addition, this programme needs to ensure the implementation of the necessary economic life cycle and value for money mechanisms through the introduction of not only systems and processes to support the preparation of forward asset strategies in respect of acquisition, use and disposal of assets but also in respect of managing the related risks and costs over all phases of the asset life cycle.

Work also need to continue to utilise the provincial supply chain management regime to ensure:

* value for money in public expenditure through engineering a reduction in procurement costs over time
* effective supplier performance management in line with pre-determined norms and standards
* the development of strategic sourcing methodologies to assist with the progressive realisation of preferential procurement targets through the development of small, medium and micro-enterprises and the implementation of effective broad-based black economic empowerment (BBBEE) strategies and the mainstreaming of historically disadvantaged operators into formal economic activities.

Key to the achievement of the aforementioned will be the implementation of a provincial suppliers' management information system by the end of the first quarter of the new financial year that will afford this government the technical means to evaluate provincial progress in meeting government targets in respect of provincial procurement.

Mr Speaker, it is also important for this House to note that in order to enhance the provincial capacity and ability to effectively and efficiently manage provincial infrastructure delivery, processes will continue in the new financial year to provide strategic leadership and support through Treasury participation in the roll-out of an Infrastructure Delivery Improvement Programme (IDIP) in the departments of health, education and public works, roads and transport to enhance the provincial capacity and ability to effectively and efficiently manage the implementation of provincial infrastructure delivery.

Mr Speaker, members of this House are well aware that the Cabinet meeting of 21 February 2007, approved a framework to align infrastructure delivery cycles with the MTEF budget cycle in order to improve planning, implementation and better cash flow management that would among other things deal with what is commonly referred to as the fourth quarter expenditure spike. This framework accommodates the long lead time before infrastructure projects reach the construction stage. To accommodate this, the infrastructure cycle needs to be amended to include an Infrastructure Programme Management Plan (IPMP) and an Infrastructure Programme Implementation Plan (IPIP) which will be mandatory for all infrastructure delivery departments.

Mr Speaker, I'm happy perhaps a little more than happy to report that these processes have already commenced in this province and that the excellent performance of the provincial Department of Public Works, Roads and Transport, will not only result in this Department not contributing anything to the so-called "March spike," this year, but that the re-alignment of processes that have already occurred in this province prior to the Cabinet approval referred to earlier, means that this province will start the new 2007/08 infrastructure delivery cycle, even ahead of schedule as envisaged by the Cabinet decision.

Expenditure proposals in respect of programme four: Financial Governance

This programme executes the functions and responsibilities of the provincial Accountant-General and promotes accountability through the substantive reflection of the financial activities of the province as well as compliance with financial norms and standards.

This programme is composed of sub-programmes for:

* programme support providing for the cost related to the efficient running of the programme
* accounting services responsible for ensuring the effective implementation of accounting practices in line with generally recognised accounting practice and the preparation of consolidated financial information that reflect the overall financial position of the province
* norms and standards: Public Finance Management Act (PFMA) charged with ensuring the development and implementation of norms and standards in provincial departments and public entities in line with the PFMA
* norms and standards: Municipal Finance Management Act (MFMA) responsible for promoting, supporting, monitoring and reporting on the implementation of the MFMA at delegated municipalities and municipal entities and ensuring that quality reports translates into service delivery and performance
* risk management and internal audit, responsible for promoting effective optimal financial resource utilisation and internal audit in departments and public entities.

14% of the total departmental budget will be utilised by this programme in 2007/08 with proposed expenditure of R18,3 million in this year, where after it will grow to R18,8 million in 2008/09 and R23,8 million in 2009/10.

Mr Speaker, the office of the Provincial Accountant-General and its sub-programmes remain the champion of financial governance in this province and work will continue in the new financial year and beyond to foster prudent financial practices in provincial departments, provincial public entities and delegated municipalities.

Mr Speaker, it goes without saying that the improvement of financial governance and efficiency remains the key to the achievements of the objectives of the Provincial Treasury. The main focus in this regard remains the promotion of greater transparency to ensure the production of credible and full information as regards government's financial transactions in line with the prescribed standards of Generally Recognised Accounting Practice (GRAP). Work in this area of operation do not only aim to ensure that no unrecorded transactions with financial implications can take place unnoticed but also that financial results are analysed and interpreted to serve both the needs of public interest and internal use that can further improve financial management practices.

Furthermore, work executed to ensure adherence to the Public Finance Management Act (PFMA) and Municipal Finance Management Act (MFMA) also aims to improve not only performance management but also to enhance the efficiency of oversight bodies such as those of the provincial legislature. Availing such information for use by oversight bodies not only gives an indication of how well vested the development and implementation of normative financial norms are throughout provincial departments and entities but also contributes towards greater efficiency in operations, financial compliance in terms of existing prescripts and regulations and the internalisation of risk reducing practices in the provincial government.

Closely related to the above are operations executed by this programme to promote effective optimal utilisation of available provincial resources through effective risk management and internal audit practices in provincial departments, public entities and municipalities. My Department has again succeeded in obtaining an unqualified audit report for the 2005/06 financial year.

Mr Speaker, observers agree that the types of risks an organisation faces have increased and become more complex in nature making it of the outmost importance for departments, entities and municipalities to homogenise their internal approaches to risk management to effectively apply limited public resources to where it matters the most. The Treasury thus has an overarching role in working with other departments and entities to ensure the establishment of effective risk management and internal audit practices, and monitor progress in this regard through assessing systems, procedures and processes for adequacy and degree of risk prevention management and reporting relevant findings to assist accounting officers to better entrench risk reducing practices, better comply with the entire spectrum of the existing financial legal framework and in the process, ensure that overall performance is improved through the creation of significant benefits from limited resources.

Mr Speaker, the cherished ideal and commitment of government to extend services to citizens previously denied even the most basic of infrastructure whilst ensuring that the quality of public service delivery remains at an acceptable standard, compels the Provincial Treasury to continue to actively play its designated role in respect of the implementation of the MFMA in respect of inter alia:

* the institution of service delivery and budget implementation plans to support multi year budgets
* compliance in respect of monthly, quarterly and annual reporting in line with MFMA norms and standards
* the implementation of appropriate supply chain management policies and processes.

Provincial Treasury is now tabling quarterly reports in the Free State Legislature in respect of compliance by delegated municipalities in terms of Section 71 reports prescribed by the MFMA.

Besides the fostering of good financial practices at municipal level, this interaction between the Provincial Treasury and municipalities over the medium term also holds the promise of unlocking the maximum benefit from the total provincial property portfolio that could result not only in improved service delivery, but also increased provincially generated revenue to support key provincial growth and development initiatives as well as allowing for better engagement with national and local spheres in respect of both financing and optimum service delivery.

The way forward: some concluding remarks

Mr Speaker, the Provincial Treasury believes that you cannot stay the best without doing better without doing more. We are willing and ready to meet new challenges and build on past strengths. Many initiatives introduced by my Department in collaboration with other departments are beginning to bear fruit.

We now have a well entrenched provincial process to ensure political involvement and oversight over the provincial budgeting and strategic planning processes to ensure that public spending in the final analysis impact on the lives of all Free Staters.

The Treasury continues to generate a wealth of quality information relating to budgets and public spending to support the Provincial Legislature and provincial Executive Council to monitor and oversee the quality and width of actual provincial public service delivery.

We will work tirelessly to create fora and channels to gain advice from departmental staff, line departments, public entities, national departments, the Finance Committee of the Legislature, the Provincial Public Accounts Committee and other portfolio committees of the Legislature, provincial clusters, municipalities and other provincial role players and stakeholders to ensure that provincial service delivery takes place in a manner that allows for maximum synergy.

The Treasury will continue to strengthen and provide strategic support with regard to accounting policies, procurement, compilation of annual financial statements and the institution of adequate risk response strategies and internal audit processes to mitigate transversal risks and improve the quality of financial management in this province.

Mr Speaker, our ducks are in a row to raise the bar on the performance of the Treasury. Our performance plan operationalise the Department's 2007/08 to 2009/10 budget proposals, through setting measurable targets to inform in-year operations effectively geared towards supporting the broader objectives and responsibilities of my Department flowing from various mandating pieces of legislature as well as the FSGDS. For us, the publication of the performance plan is much more than a compliance process as it creates the instrument for all and sundry to gauge actual departmental output delivered against set targets.

It is my pleasure to announce that the bid for the rendering of commercial banking services has been awarded to First Rand Limited. This heralds the start of a new partnership that would be the key in assisting the Treasury to continue to support provincial departments with effective and appropriate banking facilities.

Mr Speaker, there is hope for the future indeed.

Issued by: Provincial Treasury, Free State Provincial Government
16 March 2007
Source: Free State Provincial Government (http://fs.gov.za/)